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RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHVI #0553/01 1271515
ZNR UUUUU ZZH
R 071515Z MAY 09
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC 2533
INFO RHEBAAA/DEPT OF ENERGY WASHDC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 VIENNA 000553 
 
SIPDIS, SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ENRG PGOV PREL AU EUN
SUBJECT: Gas Regulators On Lessons Learned From Russia-Ukraine 
Standoff 
 
¶1. (U) SUMMARY: Post recently attended a closed-door workshop 
for European regulators on "Experiences from the January 2009 
gas crisis" hosted by Austrian energy regulator E-Control. 
The workshop's central findings (as summarized by E-Control 
head Walter Boltz): 
-- Europe suffered more from poor connectivity in the crisis 
than from inadequate storage; 
-- State-level measures are often counterproductive in a 
regional crisis; 
-- Eastern Europe needs more investment in pipeline systems, 
particularly to allow bi-directional gas flows; 
-- The EU must expand regional gas markets; and 
-- Private company initiatives were more effective than 
government actions, and will play a growing role for security 
of supply.  END SUMMARY. 
 
¶2. (SBU) Around 40 regulatory officials and other experts from 
EU countries attended the workshop (co-hosted by the Florence 
School of Regulation).  The most prominent speaker was the 
Commission's Jean-Arnold Vinois, Head of the Energy Policy and 
Security of Supply Unit at DG TREN.  (NOTE: Post has 
electronic versions of some presentations). 
 
If Ukraine Can't Pay Cash, Russia will Cut Off Gas Supply 
Again 
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- - - 
 
¶3. (SBU) Vinois said a new Russia-Ukraine gas crisis is a 
monthly possibility.  Ukraine must pay its Russian gas bill in 
cash each month, a formidable challenge for Ukrainians. 
Speaking off the record, Vinois opined that the cutoff to 
Europe was in Russia's interest more than Ukraine's:  Russian 
leadership intended to use the crisis as leverage to force 
market conditions on Ukraine.  He praised the Russia-Ukraine 
agreement to bypass intermediary trader Rosukrenergo as key to 
ending the crisis.  Ukraine urgently needs investments in its 
gas pipeline infrastructure. 
 
¶4. (U) Vinois pleaded for EU member states to 
-- make it profitable for providers to invest in pipeline 
infrastructure; 
-- improve transparency and data exchange among companies and 
regulators; 
-- make national emergency plans mutually compatible; and 
-- further diversify energy supply away from oil and gas. 
 
Kaderjak: Russia Seeks To Increase Europe's Gas Dependence 
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¶5. (U) Peter Kaderjak, Director of the University of 
Budapest's Regional Center of Energy Policy Research, 
presented a country-by-country study of gas crisis effects 
(NOTE: Post can provide via email).  Kaderjak appealed for a 
market-based approach to gas security, since the worst crisis 
impacts occurred in countries without a well-functioning gas 
market and/or outdated regulations.  Kaderjak recommended that 
national regulators promote a regional market for gas storage 
and make transmission facilities multi-directional to 
facilitate gas flow reversals in times of shortage.  Kaderjak 
praised the role of German energy giant E.ON for supplying 
Bosnia and Serbia via its subsidiaries without any push from 
governments. 
 
¶6. (SBU) In Kaderjak's view, Russia is "on the offensive" in 
the gas sector, trying to make Europe more dependent on its 
gas resources.  Russia's goal "has been achieved" in most of 
Central and Eastern Europe where 60-100% of heating and 
electricity depend on Russian gas -- and the EU imported that 
problem through its Eastern enlargement, Kaderjak opined. 
Building the proposed South Stream pipeline and/or a takeover 
of Hungarian MOL by Russian interests would intensify the 
trend, he said.  Kaderjak spoke of philosophical differences 
within the EU: whereas the "new" Eastern European members 
consider Russia "part of the problem" (given their one-sided 
dependence on gas imports), the "old" EU member states see 
Russia as "part of the solution" to meet Europe's growing gas 
needs. 
 
Austria's Market-Based Approach To Security of Supply 
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¶7. (U) Erich Juranek of Austrian oil/gas incumbent OMV and 
Thomas Heissenberger of the Austrian Grid Management 
Company/AGGM (an OMV subsidiary) highlighted Austria's market- 
based approach to managing the gas crisis.  Austria is highly 
dependent on Russian gas: it gets 64 percent of contracted gas 
from Russia, but in fact 70-80 percent of its physical supply 
is Russian gas (via paper swaps with gas from Norway and 
Germany). Only 20 percent comes from domestic production. 
 
VIENNA 00000553  002 OF 002 
 
 
Austria has considerable storage, but maximum daily withdrawal 
capacity from Austria's five gas storage facilities is only 32 
million cubic meters/mcm (versus daily winter consumption of 
45 mcm).  OMV bought supplementary gas via the German grids 
and German Wingas and Russian Gazprom, who control gas stored 
at the German grid facility in Haidach (Austria), allowing 
AGGM to tap that gas via Germany.  Austria was able to 
compensate for the remaining shortfall (10 mcm) by reducing 
consumption in heavy industries and switching some electricity 
generation and district heating to oil and coal. 
Heissenberger said that gas providers could have supplied 
Austrian consumers through the end of March without noticeable 
restrictions. 
 
¶8. (U) Jerabek emphasized the role of private companies in 
Austria's successful emergency response.  Regulatory 
involvement was largely limited to supervision: gas providers 
themselves organized measures transparently and in a spirit of 
cooperation.  By reversing some gas flows via the Baumgarten 
hub, Austria also provided transit services for "solidarity 
shipments" from Germany to southeast Europe (again, primarily 
coordinated by private companies rather than governments). 
The Austrian experience suggests that well-functioning 
security of supply requires a gas market that is deeply 
integrated both in terms of infrastructure and private market 
players who can work well across borders. 
 
KILNER